Is UK manufacturing still in decline?

01 August, 2002

Is UK manufacturing still in decline?

The latest economic figures for the UK engineering and manufacturing sectors paint a contradictory picture. Official government figure are gloomy, showing that although the engineering sector`s total turnover increased slightly in the three months to June - up 0.3% on the previous quarter - the figure was 16.7% lower than for the same period in 2001. Total orders at the end of the second quarter were 0.6% lower than for the first quarter, and 10.2% down on the same point a year ago.

The Government`s short-term figures for the equipment and machinery manufacturing sub-sector are particularly bleak. Total turnover in the three months to June slipped by 1.7% compared to the first quarter (due to a 2.1% fall in exports, combined with a 1.5% decrease in domestic sales). Compared to the same period a year ago, total turnover in this sector fell by 6.6% while orders were 2.8% down.

But another survey, published by the Chartered Institute of Purchasing and Supply (CIPS), detects "a subdued, but solid, overall growth" in the UK manufacturing economy. The CIPS Purchasing Managers` Index (PMI), compiled from questionnaires sent to purchasing executives in 620 industrial companies in the UK, went up from 49.1 in July to 51.0 in August, indicating "strong growth in manufacturing output as well as a recovery in total order books".

After three months of slowing manufacturing production, the CIPS` seasonally-adjusted output index rose sharply from 50.2 in July to 55.0 in August. But, the CIPS adds, other data from the survey suggests that conditions remain tight, with firms continuing to cut staff and run down inventories. There was also a further squeeze on operating margins during August.

The CIPS also reports that, with the exception of July, total order books in UK manufacturing have grown continuously since February. The main impetus for expansion is said to have come from the US, despite the recent strength of sterling against the dollar.

This buoyancy across the Atlantic is reflected there in new orders for US-made durable goods which jumped by a high-than-expected 8.7% from June to July. The US Department of Commerce reports that new orders for goods made to last at least three years increased by 8.7% in July to reach $180bn. This follows a 4.5% decrease in June.